BASF outlines chemicals segment strategy at investor day

9:26 AM MDT | May 23, 2014 | —Natasha Alperowicz

Bock: Outlook has improved slightly, ‘but we are far from conditions of a speedy recovery.’

BASF officials outlined the company’s plans for its chemicals segment at the company’s investor day at London on 22 April. The segment, which last year accounted for 23% of the company’s €74.0 billion ($101 billion) sales and 28% of the €10.4 billion Ebitda, is the core of the company’s Verbund integration concept and the start of its added-value chain. Kurt Bock, CEO; and board member Wayne Smith also talked about the recently announced methane-to-propylene (MTP) project planned on the US Gulf Coast; the ammonia joint venture project with Yara at Freeport, TX; and the bright prospects the company sees for methylene di-para-phenylene isocyanate (MDI).

Smith announced at the event that BASF, Huntsman, and their Chinese partners have received a permit to double MDI capacity at Caojing, China, near Shanghai, from 240,000 m.t./year to 480,000 m.t./year, which should be onstream in the next two years. The jv, Shanghai Lianheng Isocayanate, is owned 35% each by BASF and Huntsman. Chinese partners have the remainder. However, Smith confirms that BASF’s stand-alone 400,000-m.t./year MDI facility at Chongqing, China, will be delayed because, following the Chinese government’s decision to raise gas prices to the chemical industry, BASF’s suppliers of chlorine will be unlikely to meet the original completion deadline of 2014. The MDI plant is now scheduled onstream in the second quarter of 2015.

The investor day, attended by more than 100 analysts, was followed by a roundtable discussion with journalists at which Bock said that the outlook has improved slightly. “The biggest speed bumps are probably behind us,” Bock says. “Volumes are okay going into the second quarter, but we are far away from conditions of a speedy recovery. At our customer base, we don’t feel any underlying enthusiasm trying to get BASF product as quickly as possible because we are running out of material,” he says.

BASF has announced two major projects to take advantage of low-cost US shale gas, a 750,000-m.t./year ammonia plant at Freeport, TX; and a world-scale, on-purpose propylene facility on the US Gulf Coast. These investments will account for a “good share” of the €6.50 billion capital expenditure allocated for the chemicals segment in the next five years, Smith says.

While BASF is developing its own technology to produce short-chain olefins from methane, which process the company will use in the planned US propylene plant is unclear. Analysts believe that the company will not have its own proven technology by 2019, when BASF wants to have the plant onstream, and will instead opt for the Lurgi process, licensed by Air Liquide. Smith confirms that the on-purpose propylene plant will use methane-to-methanol-to-propylene (MTP) technology. BASF has looked into other processes, including propane dehydrogenation, which it already uses at Tarragona, Spain; and metathesis, used at Port Arthur, TX, and decided that MTP would be the better solution. Bock, in response to CW’s question on whether the plant would be built at an existing BASF site or colocated at a different facility, said it would be a BASF site. The contenders are Geismar, LA; Freeport, and Port Arthur—BASF’s major US sites.

When asked repeatedly whether the US capacity buildup will hurt Europe, Smith said it is unlikely to affect BASF because the products exported from the United States are likely to be bulk commodities, such as polyolefins and methanol. The company has quit the polyolefins business and is a major buyer of methanol. BASF’s own US investments are back-integration projects. The company is a major buyer of both ammonia and propylene, particularly in the United States.

At the event, Bock also touched on escalating US engineering and construction costs, particularly on the Gulf Coast. BASF will build the ammonia and MTP plants to replace product it buys rather than gain market share, and the investments will need to be budget-driven, not schedule-driven. But, he acknowledges that the “US is not a very flexible labor market.” One cannot import construction labor from Mexico, for example. A fix is to bring in labor from other regions in the United States, but “that is only part of the solution. The other is to modularize equipment and bring the modules to the site.”

BASF’s chemical segment, which includes basic petrochemicals, isocyanates, and intermediates, is among the company’s most profitable and is expected to grow in line with the market, about 4.3%/year, through 2020. Sales of the chemical segment are targeted to rise to about €30 billion and Ebitda to €4.5–5.0 billion by the end of the decade.